Section 4.4 Econ. Integration Mind Map & Country Evaluation
Monetary union:
Trading blocs:
Preferential trade agreements:
Globalization
The World Trade Organization (WTO):
bilateral
Regional Trade Agreements (RTA)
multilateral
trade agreements between countries that are geographically close
members of the WTO must notify the WTO of any RTAs which they are in.
'freer trade' --> that the countries agree to reduce / remove tariffs for certain goods or services
simplest PTA
when two countries agree to engage in "freer trade"
when two+ countries form an agreement
the aim is to build stronger relationships + become a free trade area
helps support the world going into freer trade under WTO
This is more complex; more so now than ever
There were less than thirty trade agreements in force in 1990. By 2019 there were more than 300 in force.
pros
improvements to social welfare
increased international cooperation
foreign direct investments
Goals / objectives
originated from the General Agreement for Tariffs and Trade (GATT) that was set up in 1947
it was to overlook trades between countries
after WW2, many leaders wished to stabilize global trade relations between countries
What affects the influence of the WTO?
power imbalances
Trade disagreements
many issues relating to agricultural subsidies
LDC -> struggle to send any to the rounds of negotiation.
MDC -> large group of specialists / negotiators to work on trade agreements
WTO functions
administering and monitoring the application of WTO trade agreements
acting as a forum for trade negotiations
settling trade disputes
monitoring national trade policies
providing technical assistance and training for developing countries
cooperating with other international organisations
WTO headquarters in Geneva.
economic growth
tariff escalation:
more products processed-> tariffs increase
to improve and broaden international trade
MDCs have higher support (in agriculture) than LDCs
MDC: more developed countries
LDC less developed countries
Advantages
Disadvantages
Greater access to markets and the potential benefit from economies of scale
Greater employment opportunities with labour mobility
Stronger bargaining power in multilateral negotiations
Greater political stability and cooperation
Loss of sovereignty
The difficulties of engaging in multilateral trade negotiations
Factors that
contribute to globalisation
The rise of free-market economics
Reduced trade barriers, increased trade and competition
Multinational corporations (MNCs)
New technology
EXAMPLE: trade blocks such as the EU have lots of power
-----> may tilt the balance in negotiation
EXAMPLE:
CARICOM EPA: initialed on March 15, 2003,
the trade agreement provides free trade / preferential access for certain goods.
the CARICOM
includes:
tariffs
intellectual property rights
human rights
environmental policies
etc
Evolution of RTAs in the world from 1948 to 2020
EXAMPLE:
NAFTA: it is the largest trading group
The countries that
participate in the NAFTA
EXAMPLE:
AANZFTA is a multilateral trade agreement between Australia, New Zealand, and the ASEAN Member States. Benefits of this agreement: Increased market access via progressive tariff reduction and elimination
EXAMPLE:
OECD is an intergovernmental economic organization with 38 member countries started in 1961 to stimulate economic progress
EXAMPLE:
EXAMPLE:
Explain how economic integration increases competition among producers within the trading bloc.
the different types
Common market: An area of economic integration that allows nations to trade freely with each other, set a common external policy and allow free movement of factors of production between member states.
Customs union: An area of economic integration created via an agreement between nations to both trade freely among each other and set a common external policy towards non-member countries.
Free Trade Area: Area created by a free trade agreement among countries to remove all barriers to trade with each other. Countries can set their own barriers to non-member countries.
Economic integration: countries reduce trade barriers to coordinate fiscal and monetary policy
The main objective of economic integration is to increase welfare. The increase in trade between various members of economic unions causes an overall GDP increase for its members which therefore causes welfare gain.
6 stages of economic integration
Preferential trade agreement
Free trade area → diminishes trade barriers
Customs union → setting up common external factors
Single market → freedom of movement of factors of production
Economic and monetary union → common currency and common economic policy
Complete integration (political union) → integration in non-economic areas like common foreign affairs policy or internal affairs
Advantages/disadvantages
Advantages
Increased foreign direct investment
Efficient resource allocation
Increased consumer welfare
Decreased costs of production
Increased price competitiveness
Increased economics of scale
Improved current account
Disadvantages
Introduction of non-tariff barriers
Inefficient domestic firms shut down
Reduced tariff revenues for government
Increased current account deficits
Compare and contrast the different types of trading blocs
Include advantages and disadvantages of trading blocs
Free Trade Areas
Single Market
Customs Union
No external tariff
No tariffs between members
Can negotiate own trade
no tarrifs
No border checks
Common external tariffs
Trade deals for whole customs union
Common external tariffs
freedom of movement
No tariffs
Common rules and negotiations
Disadvantages
Advantages
Potential benefit from economies of scale
More employment opportunities because of labour mobility
Greater access to markets
Higher bargaining power within multilateral negotiations
Loss of sovereignty
Trade creation and trade diversion
Challenges with engaging in multilateral trade negotiations
advantages and disadvantages
Explain that a monetary union is a common market with a common currency and a common central bank.
Distinct features of a monetary unions is that it agrees to the same currency, the same central bank, and the same monetary policy
Important because it helps members strengthen competitiveness on a global scale
Ex: Eurozone
Eliminates the exchange rate risk
Transactions among member states can be processed faster and their costs decrease since fees to banks are lower
Advantages
Elimination fo exchange rate uncertainty
Elimination of costs of converting currencies
Increase price transparency
Increased competition and efficiency
Increased inward investment
Disadvantages
Transition costs
“One size fits all policy”
Differing policy effects
shock